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Saturday, August 6, 2016

Is it mandatory to declare foreign bank accounts and assets in income tax return by NRI?

One of the common doubt among NRIs who are filing their income tax returns in India is to whether to declare foreign bank accounts and assets or not. I often receive comments and questions whether it's mandatory for an NRI to disclose the foreign bank account details and an asset on income tax returns? The short answer is No. It's not mandatory for an NRI to disclose or mention its foreign bank account details while filing income tax returns in India, but you need to be sure about your residential status.

As per income tax law, a person can be either Resident and Ordinary Resident (ROR), Resident and Not Ordinarily Resident (RNOR), or Non Resident (NR). If you fall into the first category then YES it is mandatory for you to declare your foreign income and assets because you are not an NRI in that financial year for income tax purpose, but if your residential status is either NR or RNOR then it's not required for you to declare your foreign bank account details in ITR.

In short, you just need to make sure that you have counted the number of days outside India correctly and determined the correct residential status as per income tax law. Once you are sure that you are not an ROR then it's not mandatory to declare foreign bank details.

What is difference between ROR, RNOR, and NR

Well, these are just different residential status for an individual from income tax perspective. You might know that you need to stay overseas for more than 182 days to become an NRI in that year and financial year in India runs from 1st April to 31st March. Here is a nice diagram to check your residential status from income tax perspective.

In short, It's not mandatory for an NRI taxpayer to declare its foreign assets or bank accounts while filing income tax returns but you should be careful while determining your residential status. If you are resident e.g. you only spent less than 182 days overseas in that financial year then yes you need to declare your foreign asset and pay tax on them because the global income of Indian residents is taxable in India. If you have already paid some tax on that money overseas, you can always use DTAA to claim rebates.